The AVR does not know if your speakers are configured for a 7.1 (non Atmos), or 5.1.2 (Atmos) so you have to set it up manually in the Assign Mode menu. Note: You should run Audyssey setup, and in that case you may not have to do it manually, but just follow the onscreen instructions during the Audyssey setup process.
Below is from the Owner's manual page 179:
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If the movie you play is coded for Atmos, the AVR will know and you don't need to intervene. If not, then you can select the virtual mode that you prefer.
For the sub controls, I suggest you do the following:
1. Set volume to about 1/4 to 1/3 of maximum. Note: Owner's manual says 1/2, but that most often would end up being too much and the subwoofer may be over driven.
2. Turn the crossover knob on the subwoofer to maxium.
3. Set the phase to 0 degree.
4. Set auto sense to "On".
After that, run Audyssey setup, follow instructions to the letter. During the first few steps it should ask you to set up your speaker configuration (such as dolby Atmos selections). If it does then you don't have to do it manually later.